Nat Gas Up On Heating Demand

CRUDE OIL 

January Crude Oil is near unchanged this morning as the trade awaits the results of the OPEC+ meeting. Sources say the group is expected to extend its production cuts by another three months, which should not be much of a surprise. This would postpone the production increases that were supposed to be put in place in January, after postponing them this fall. Speaking at a conference in UAE overnight, the head of Russia’s largest oil producer, Rosneft, said that the decisions by OPEC+ to reduce oil output in 2016 and 2020 helped stabilize the global oil market but also helped the US shale industry make the US a leading exporter. Once the OPEC+ meeting has passed, the trade is expected to focus on the incoming Trump Administration’s plans for the energy sector, which would include loosening regulations (which could boost supply and be negative for prices long term), US tariffs on Canadian imports, including oil and natural gas (positive for prices), and lifting the Biden Administration’s suspension of new LNG terminal licenses (positive long term for natural gas). The Mideast conflict has not had any direct influence on supply, but that has not kept the market from sometimes rallying off escalatory moves on either side. Chinese demand growth expectations have been lowered this year due to their sluggish economy but also because of their embrace of EVs and natural gas-powered trucks. The EIA report yesterday was mixed, with US crude oil stocks showing a much larger than expected decline for the week ending November 29 and gasoline and distillate stocks showing larger than expected increases due to a jump in refinery operations.

NATURAL GAS

January Natural Gas is higher this morning after reaching a 2 ½ week low yesterday. Extreme cold and snowy weather hitting the northern part lower 48 could increase heating demand this week, but conditions are expected to turn mild again as we progress through the month. The 6-10 day forecast has normal to above normal temperatures across the lower 48, with some cooler than normal showing up in southern Texas and in Louisiana, which is a little cooler than the previous forecast. However, the 8-14 day shows above normal temperatures across the entire lower 48, with most above normal occurring in the northern part of the country. For the EIA storage report today , trade expectations range from -53 to +59 for last week. The five year average change for the week is -43 bcf, and a year ago, storage saw a draw of 117 bcf for the week. At no point in the last five years did it show an injection for this week. The smallest withdrawal was 1 bcf in 2020. Storage has a tendency to peak for the year around now. The cold weather may have helped contribute to a decline over the past week, but the forecast for a warming trend could keep withdrawals at a minimum. LSEG said this week that lower 48 gas production had risen to 102.3 billion cubic feet per day so far in December, up from 101.5 bcfd in November. Last December, production reached a record 105.3 bcfd.

PRODUCT MARKETS

January RBOB is slightly lower this morning as the market awaits the OPEC+ outcome. Strong refinery activity last week led to bigger than expected increases in gasoline and distillate stocks, but gasoline stocks were still at their lowest level for this point in the season in at least six years. January ULSD fell to its lowest level since October 29, as this market exhibits a more clearly defined downtrend. Unlike gasoline, it does not have the benefit of tight supply. A warmup over the next two weeks could limit any seasonal demand increases.

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